Consultant raised concerns about railcar bidder Before SEPTA gave early approval to a South Korean company, which it later revoked, timeliness and experience were flagged.

Posted: April 02, 2004

SEPTA recommended a South Korean firm for a $236 million railcar contract despite a consultant's warning that it would be "not impossible, but difficult," for the firm's South Philadelphia plant to be fully operational on schedule.

Consultant Booz Allen Hamilton also cited "concerns" about the railcar manufacturer's inexperience in the highly regulated business of making American passenger cars.

Last month, SEPTA threw out its preliminary award to the South Korean firm, United Transit Systems, and is now preparing to rebid the contract. United Transit is considered a leading contender for the work.

SEPTA declined to discuss the consultant's report, which evaluated the four firms seeking to build the next generation of Regional Rail cars.

United Transit waved aside the critical assessments.

"The critique gives the wrong impression" of the time frame to set up the South Philadelphia plant, said Hats Kageyama, an executive in the United Transit consortium. Workers at the former Philadelphia Naval Shipyard would install seats, floor covering and other parts on cars largely built in South Korea.

"It's true we have no experience in the U.S.," said Dong-Hyun Choi, another United Transit official, but the firm has wide "experience in the world market," he said.

United Transit has lobbied hard for the work. In February, SEPTA made a preliminary decision to award the contract to the firm.

That plan was dropped after a competitor, Kawasaki Rail Cars, filed suit claiming that bid specifications had been improperly changed to favor United Transit.

SEPTA canceled the contract and is now preparing new bid criteria that would mandate an award to the lowest bidder.

When it first sought bids, SEPTA emphasized technical merit rather than price. It cited the agency's experience in 1993 when a contract for Market-Frankford cars went to the low bidder, as the law then mandated.

That firm, Adtranz, delivered the cars two years late and with a variety of technical problems.

The preliminary award to United Transit in January was controversial because SEPTA's staff gave it the lowest technical score among the four bidders, while Kawasaki was rated the highest.

United Transit bid $236 million and Kawasaki bid $250 million. SEPTA said a modest amount of "risk" was worth the savings. The agency projects a $70 million operating deficit in the fiscal year starting July 1.

United Transit has also promised to hire as many as 400 people at the former Navy Yard. Its intensive lobbying efforts included the hiring of a firm headed by Alan Novak, chairman of the Pennsylvania Republican Party.

The comments by Booz Allen, based in McLean, Va., were contained in a "responsibility review" to confirm each bidder had the financial and organizational ability to produce the cars.

All four were found "responsible," though Booz Allen criticized aspects of each competitor's performance. Its review of United Transit was the most cautionary, because unlike its competitors, United Transit has virtually no American car-manufacturing experience.

SEPTA spokesman Richard Maloney would not comment on the Booz Allen report and said The Inquirer was "simply asking negative stuff about UTS, and we don't think it's fair."

Maloney said it was now "moot for us to be reviewing or even discussing what we did in the past, because we are beginning with a clean slate."

Both United Transit and Kawasaki say they will bid on the new contract.

United Transit is a consortium of Rotem, a South Korean railcar maker, and Nissho Iwai American Corp., a Japanese corporation that manages railcar construction.

These were among the issues raised by Booz Allen, and United Transit's response:

The proposed final assembly plant in Philadelphia is now an empty shell and United Transit would have to train workers, managers, engineers and quality-control staff.

"Rotem indicates considerable effort will be provided to transfer . . . systems from Korean home factory to Philadelphia. Rotem would have about one year time to manage transition. Not impossible, but difficult," the report said.

United Transit officials said that overestimates the challenge. Dong-Hyun Choi of Rotem USA Corp. said it has up to "30 months" to ready the plant.

Kageyama, who helped manage Kawasaki's debut in the U.S. market in the 1980s, said final assembly depends primarily on workers' ability to follow directions, and less on experience.

Concern was expressed that United Transit is "unfamiliar with American business practices" and that "the [Korean] staff does not have any experience with U.S. vehicle contracts." Communication between top American managers and "a predominantly Korean-speaking support group could be problematic," the report said.

Kageyama said he would strictly enforce coordination between all parties.

Choi said Rotem has American or English-speaking staff and plans to hire more.

The firm that would be managing the final assembly in Philadelphia, TTA Systems, was criticized for its work on a current job for the Washington Metro. "The overall impression was that TTA's performance has degraded," said the report.

TTA senior vice president Michael Nisbet would not comment on the Washington contract, but he said work on other railcar assembly projects has been "completed on time, on budget, and to fully satisfactory quality."

If United Transit wins the SEPTA job, it will seek state assistance to help finance construction of the final assembly plant, Kageyama said.

About $2.75 million to build a rail spur to the South Philadelphia plant was included in June in a state capital spending bill now pending in Harrisburg.

Kageyama acknowledged that could be perceived as effectively subsidizing United Transit's low bid, but said, "The difference is . . . who gets the jobs . . . the state of Pennsylvania or the state of Nebraska?"

Kawasaki's plant is in Lincoln, Neb.

Contact staff writer Nathan Gorenstein at 215-854-5983 or

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